Skip to main content
SpringerLink
Log in

MMEs: Outcompeted by Low-Cost Economies

  • Chapter
  • First Online:
Rising Powers and Economic Crisis in the Euro Area

Part of the book series: Global Reordering ((GRP))

  • 213 Accesses

Abstract

This chapter discusses the extra-regional trade performances of the MMEs in the context of the rise of the BICs. We show that trade deficits outside of the euro area have until recent years been almost as important as within the region. These negative external trade balances can be related to the very low export shares of the southern member states, especially vis-à-vis the BICs, which also assume a significant role in their external deficits. While labor costs have risen excessively in MMEs and this can be partly explained by the lack of coordinative wage-setting institutions, this has not been fully translated into loss of price competitiveness. The poor export performances of the MMEs and resulting high trade deficits should also be related to non-price competitiveness factors, more specifically their trade structures (poor export composition, quality and geographical orientation) rooted in skill-formation and innovation regimes. Because of these deficient export bases and underlying institutions, the southern euro area member states have been negatively affected by the appreciation of the euro that was reinforced by monetary policies of the BICs as well as by direct competition from the BICs in those products in which they held comparative advantages. After the crisis, Greece, Spain and Portugal have been able to spectacularly reduce their trade deficits. This has succeeded due to a combination of a reduction of intra-regional imports and increase in extra-regional exports. The rebalancing of unit labor costs (ULC) within the euro area cannot sufficiently explain the reduction of the MMEs trade deficits. Rather, the depreciation of the euro seems to have been the driver for the increase in extra-regional exports but should be considered a necessary but insufficient condition for a sustainable recovery.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 39.99
Price excludes VAT (USA)
  • Available as EPUB and PDF
  • Read on any device
  • Instant download
  • Own it forever
Hardcover Book
USD 54.99
Price excludes VAT (USA)
  • Durable hardcover edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

References

  • Amable, B., Guillaud, E., & Palombarini, S. (2012). Changing French capitalism: Political and systemic crises in France. Journal of European Public Policy, 19(8), 1168–1187.

    Article  Google Scholar 

  • Antoniades, A. (2012). Local versus producer currency pricing: Evidence from disaggregated date. International Economic Review, 53(4), 1229–1241.

    Article  Google Scholar 

  • Belke, A. H., Oeking, A., & Setzer, R. (2014). Exports and capacity constraints—A smooth transition regression model for six euro area countries (ECB working paper no. 1740). Frankfurt: ECB.

    Google Scholar 

  • Boyer, R. (1995). Wage austerity or/and an educational push: The French dilemma (CEPREMAP paper no. 0516). Paris: CEPREMAP.

    Google Scholar 

  • Breen, R. (2005). Explaining cross-national variation in youth unemployment: Market and institutional factors. European Sociological Review, 21(2), 125–134.

    Article  Google Scholar 

  • Chen, R., Milesi-Ferretti, M., & Tressel, T. (2013). External imbalances in the eurozone. Economic Policy, 28(73), 101–142.

    Article  Google Scholar 

  • Culpepper, C. D. (2007). Small states and skill specificity: Austria, Switzerland and inter-employer cleavages in coordinated capitalism. Comparative Political Studies, 40(6), 611–637.

    Article  Google Scholar 

  • Culpepper, P. (2008). Capitalism, coordination, and economic change: The French political economy since 1985. In P. A. Hall, P. D. Culpepper, & B. Palier (Eds.), Changing France: The politics that markets make (pp. 29–49). Basingstoke: MacMillan Palgrave.

    Chapter  Google Scholar 

  • DG Trésor. (2014). What is the “non-price” positioning of France among advanced economies? (Trésor-Economics No. 122). Paris.

    Google Scholar 

  • Di Maio, M. (2014). The Italian economy, the economic crisis and industrial policy. In A. A. C. Teixeira, E. G. Silva, & R. P. Mamede (Eds.), Structural change and industrial policy: Painful lessons from the European periphery (pp. 241–257). London: Routledge.

    Google Scholar 

  • Draghi, M. (2014). Speech at the ECB forum on central banking, Sintra, 26 May 2014.

    Google Scholar 

  • European Commission. (2011). Scoreboard for the surveillance of macroeconomic imbalances: Envisaged initial design. Commission staff working paper SEC 1361, European Commission, Brussels.

    Google Scholar 

  • European Commission. (2011). The textile and clothing sector and EU trade policy. Brussels: European Commission.

    Google Scholar 

  • European Commission. (2013b). Labour costs pass-through, profits and rebalancing in vulnerable member states. Quartely Report on the Euro Area, 12(3), 19–25.

    Google Scholar 

  • European Commission. (2013c). Report from the Commission to the European Parliament, the Council, the European Central Bank and the European Economic and Social Committee: Alert mechanism report 2014. Brussels, 13.11.2013, COM(2013) 790 final.

    Google Scholar 

  • European Council. (2011). Conclusions of European Council 24/25 March. Brussels: European Council.

    Google Scholar 

  • Fishman, R. M. (2012). Anomalies of Spain’s economy and economic policy-making. Contributions to Political Economy, 31(1), 67–76.

    Article  Google Scholar 

  • Fortis, M. (2015). Italy’s competiteveness according to UNCTAD/WTO’s Trade Performance Index. SpringerBriefs in Business. doi:10.1007/978-3-319-15817-4_2.

    Google Scholar 

  • Goyer, M. (2002). The transformation of corporate governance in France and Germany: The role of workplace institutions (MPIfG working paper no. 02/10). Cologne: MPIfG.

    Google Scholar 

  • Hall, P. A. (2014). Varieties of capitalism and the euro crisis. West European Politics, 37(6), 1223–1243.

    Article  Google Scholar 

  • Hancké, B. (2013). Unions, central banks, and EMU: Labour market institutions and monetary integration in Europe. Oxford: Oxford University Press.

    Book  Google Scholar 

  • Hausmann, R., & Hidalgo, C. A. (2014). The atlas of economic complexity: Mapping paths to prosperity. Cambridge, MA: MIT Press.

    Google Scholar 

  • Hopkin, J. (2015). The troubled Southern periphery: The euro experience in Italy and Spain. In M. Matthijs & M. Blyth (Eds.), The future of the euro (pp. 161–186). Oxford: Oxford University Press.

    Google Scholar 

  • Höpner, M., & Lutter, M. (2014). One currency and many models of wage formation: Why the eurozone is too heterogeneous for the euro (MPIfG discussion paper no. 14/14).

    Google Scholar 

  • IEA. (2014). Energy supply security: Emergency response of IEA countries 2014. Paris: International Energy Agency.

    Google Scholar 

  • Ioannides, Y. M. (2015). Why productivity enhancing reforms will help Greece exit the crisis and usher in long run growth, Working paper. Available at https://sites.tufts.edu/yioannides/files/2015/01/IoannidesJan242015MegaronPaperFigs.pdf

  • Italian Trade Agency. (2013). Italy in the world economy: ICE report 2012–2013. Available at http://www.italtrade.com/italy/ice_report2013_summary.pdf

  • Johnston, A. (2012). European Economic and Monetary Union’s perverse effects on sectoral wage inflation: Negative feedback effects from institutional change? Comparative Political Studies, 13(3), 345–366.

    Google Scholar 

  • Johnston, A., & Regan, A. (2014). European integration and the incompatibility of national varieties of capitalism problems with institutional divergence in a monetary union (MPIfG discussion paper no. 14/15).

    Google Scholar 

  • Johnston, A., Hancké, B., & Pant, S. (2014). Comparative institutional advantage in the European sovereign debt crisis. Comparative Political Studies, 47(13), 1771–1800.

    Article  Google Scholar 

  • Kabundi, A., & Nadal De Simone, F. (2009). Recent French export performance: Is there a competitiveness problem? (IMF working paper WP/09/2). Washington, DC: IMF.

    Google Scholar 

  • Karamessini, M. (2008). Still a distinctive southern European employment model? Industrial Relations Journal, 39(6), 510–531.

    Article  Google Scholar 

  • Kierzenkowski, F. (2009). The challenge of restoring French competitiveness (OECD Economics Department Working Papers No. 720). Paris: OECD.

    Google Scholar 

  • Lucidi, F., & Kleinknecht, A. (2010). Little innovation, many jobs: An econometric analysis of the Italian productivity crisis. Cambridge Journal of Economics, 43(3), 525–546.

    Article  Google Scholar 

  • Ministry of the Economy, Finance and Employment. (2007). Has France adjusted to recent trends in world trade? (Trésor-Economics no. 17). Paris: Trésor.

    Google Scholar 

  • Mitsopoulos, M., & Pelagidis, T. (2014). Why did forceful internal devaluation fail to kick-start export-led growth in Greece? Challenge, 57(6), 85–102.

    Article  Google Scholar 

  • Molina, O., & Rhodes, M. (2007). The political economy of adjustment in mixed market economies: A study of Spain and Italy. In B. Hancké, M. Rhodes, & M. Thatcher (Eds.), Beyond varieties of capitalism: Confl ict, contradictions and complementarities in the European economy. Oxford: Oxford University Press.

    Google Scholar 

  • Moreno, B. M., Schule, W., Bennett, H. Z., & Escolano, J. (2008). Competitiveness in the southern euro area: France, Greece, Italy, Portugal, and Spain (IMF working papers no. 1–114). Washington, DC: IMF.

    Google Scholar 

  • Quaglia, L., & Royo, S. (2014). Banks and the political economy of the sovereign debt crisis in Italy and Spain. Review of International Political Economy. doi:10.1080/09692290.2013.877059.

    Google Scholar 

  • Royo, S. (2007). Varieties of capitalism in Spain: Business and the politics of coordination. European Journal of Industrial Relations, 13(1), 47–65.

    Article  Google Scholar 

  • Sanchez, J. D., & Varoudakis, A. (2013). Growth and competitiveness as factors of eurozone external imbalances (World Bank Policy Research working paper 6732). Washington, DC: World Bank.

    Google Scholar 

  • Schmidt, V. A. (2012). What happened to the state-influenced market economies (SMEs)? France, Italy, and Spain confront the crisis as the good, the bad, and the ugly. Available at http://wrap.warwick.ac.uk

  • Schulten, T., & Müller, T. (2014). Wages and collective bargaining during the European economic crisis developments in European manufacturing industry. IndutriALL European trade union report, Düsseldorf/Brussels, March.

    Google Scholar 

  • Simoni, M. (2012). Institutional roots of economic decline. Lessons from Italy. London School of Economics, mimeo.

    Google Scholar 

  • Souto-Otero, M., & Ure, O. B. (2012). The coherence of vocational education and training in Norway and Spain: National traditions and the reshaping of VET governance in hybrid VET systems. Compare: A Journal of Comparative and International Education, 42(1), 91–111.

    Google Scholar 

  • Storm, S., & Naastepad, C. W. M. (2014). Europe’s hunger games: Income distribution, cost competitiveness and crisis. Cambridge Journal of Economics. doi:10.1093/cje/beu037.

    Google Scholar 

  • Tiffin, M. A. (2014). European productivity, innovation and competitiveness: The case of Italy (International Monetary Fund working paper no. 14–79).

    Google Scholar 

  • Uxo, J., Paul, J., & Febrero, E. (2014). Internal devaluation in the European periphery: The story of a failure (UCLM Working Papers, DT 2014/2). DC: IMF.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Political Science, Ghent University, Gent, Oost-Vlaanderen, Belgium

    Ferdi De Ville & Mattias Vermeiren

Authors
  1. Ferdi De Ville
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Mattias Vermeiren
    View author publications

    You can also search for this author in PubMed Google Scholar

Copyright information

© 2016 The Editor(s) (if applicable) and The Author(s)

About this chapter

Cite this chapter

De Ville, F., Vermeiren, M. (2016). MMEs: Outcompeted by Low-Cost Economies. In: Rising Powers and Economic Crisis in the Euro Area. Global Reordering. Palgrave Pivot, London. https://doi.org/10.1057/978-1-137-51440-0_5

Download citation

Publish with us

Policies and ethics

Search

Navigation